Crypto Founders’ Assets Frozen amid Hedge Fund Collapse

Crypto Founders’ Assets Frozen amid Hedge Fund Collapse

Time Stamp: December 21, 2023 11:52 AM
Source Node: 3030289

A court has frozen up to $1.14 billion in assets belonging to the founders of Three Arrows Capital (3AC), a now-defunct cryptocurrency hedge fund. The order prevents Su Zhu, Kyle Davies, and Davies' wife, Kelly Chen, from transferring or selling these assets.

The freeze comes as Three Arrows Capital faces liquidation. The firm was once one of the largest crypto-focused hedge funds before a series of risky bets led to its demise last year, amid a broader crypto market rout.

According to liquidator Teneo, the freeze order was issued by a British Virgin Islands court. Teneo estimates that 3AC creditors are owed about $3.3 billion. The liquidator alleges that Zhu and Davies should be held responsible for the hedge fund's failure.

"The worldwide freezing order has been sought in connection with claims that are being pursued by the liquidators that allege, amongst other things, that the founders should be held responsible for causing 3AC's position to deteriorate by an amount that is equivalent to the value of the freezing orders sought," Teneo commented.

Earlier this year, Zhu was arrested in Singapore for allegedly attempting to flee the country. Both he and Davies have been banned from conducting regulated financial activity in Singapore for nine years. Zhu is expected to be released from prison this month.

The asset freeze marks the latest downfall of formerly prominent crypto entrepreneurs. It comes on the heels of FTX founder Sam Bankman-Fried's conviction for fraud in the US. The crypto sector has faced increased scrutiny around risky practices as several major industry players have collapsed over the past year.

Singapore's Court Investigates Three Arrows Capital

The Singapore court's recent interrogation of Zhu marks a critical juncture in the ongoing investigation into the firm's collapse. This as a pivotal moment in the liquidators' quest to recoup $3.3 billion owed to creditors.

During the two-day inquiry, the focus was on deciphering the complexities surrounding 3AC's failure and locating its assets. Zhu and Davies face allegations from liquidators of impeding the investigation. Their aim is to reclaim $1.3 billion from the pair. Despite these significant claims, Zhu and Davies have not been criminally charged in Singapore. The findings from these proceedings are expected to be disclosed to the creditors.

Domino Effect of 3AC

At its zenith, 3AC managed $18 billion in cryptocurrency assets. However, it faltered in meeting margin calls in June of the previous year, sparking concerns over its financial soundness. Following regulatory breaches linked to the fund's operations, the Monetary Authority of Singapore imposed a nine-year prohibition on the duo from engaging in the financial services sector within the city-state.

The fall of 3AC had repercussions that spread well beyond its direct stakeholders. One such casualty was Voyager Digital, another cryptocurrency lender, which declared bankruptcy following its inability to reclaim debts from 3AC. This incident triggered a chain reaction, causing damages upwards of $3 billion and affecting numerous entities within the cryptocurrency industry.

A court has frozen up to $1.14 billion in assets belonging to the founders of Three Arrows Capital (3AC), a now-defunct cryptocurrency hedge fund. The order prevents Su Zhu, Kyle Davies, and Davies' wife, Kelly Chen, from transferring or selling these assets.

The freeze comes as Three Arrows Capital faces liquidation. The firm was once one of the largest crypto-focused hedge funds before a series of risky bets led to its demise last year, amid a broader crypto market rout.

According to liquidator Teneo, the freeze order was issued by a British Virgin Islands court. Teneo estimates that 3AC creditors are owed about $3.3 billion. The liquidator alleges that Zhu and Davies should be held responsible for the hedge fund's failure.

"The worldwide freezing order has been sought in connection with claims that are being pursued by the liquidators that allege, amongst other things, that the founders should be held responsible for causing 3AC's position to deteriorate by an amount that is equivalent to the value of the freezing orders sought," Teneo commented.

Earlier this year, Zhu was arrested in Singapore for allegedly attempting to flee the country. Both he and Davies have been banned from conducting regulated financial activity in Singapore for nine years. Zhu is expected to be released from prison this month.

The asset freeze marks the latest downfall of formerly prominent crypto entrepreneurs. It comes on the heels of FTX founder Sam Bankman-Fried's conviction for fraud in the US. The crypto sector has faced increased scrutiny around risky practices as several major industry players have collapsed over the past year.

Singapore's Court Investigates Three Arrows Capital

The Singapore court's recent interrogation of Zhu marks a critical juncture in the ongoing investigation into the firm's collapse. This as a pivotal moment in the liquidators' quest to recoup $3.3 billion owed to creditors.

During the two-day inquiry, the focus was on deciphering the complexities surrounding 3AC's failure and locating its assets. Zhu and Davies face allegations from liquidators of impeding the investigation. Their aim is to reclaim $1.3 billion from the pair. Despite these significant claims, Zhu and Davies have not been criminally charged in Singapore. The findings from these proceedings are expected to be disclosed to the creditors.

Domino Effect of 3AC

At its zenith, 3AC managed $18 billion in cryptocurrency assets. However, it faltered in meeting margin calls in June of the previous year, sparking concerns over its financial soundness. Following regulatory breaches linked to the fund's operations, the Monetary Authority of Singapore imposed a nine-year prohibition on the duo from engaging in the financial services sector within the city-state.

The fall of 3AC had repercussions that spread well beyond its direct stakeholders. One such casualty was Voyager Digital, another cryptocurrency lender, which declared bankruptcy following its inability to reclaim debts from 3AC. This incident triggered a chain reaction, causing damages upwards of $3 billion and affecting numerous entities within the cryptocurrency industry.

Time Stamp:

More from Finance Magnates